Monday, March 10, 2014

State of Economy in Iran

A Sobering Report by the Minister of Economy

On Thursday, Iran’s Minister of Economy Ali Tayeb-Nia addressed the Assembly of Experts on the country’s state of the economy. The highlights of the speech are listed below, translated from Farsi. Mehr News Agency published the original Farsi text on 7 March.

The rate of economic growth for the calendar year 1391 (ending March 2013), the latest date when the annual reporting on the growth rate is available, was at negative -5.8 percent. Taking into account the population growth rate, this means the per capita income in the country was reduced by 7 percent in just one year, a “dangerous situation” for the country.

The negative growth continues to this day. The government is trying its best to arrest the decline and reach zero rate of growth during the next calendar year (starting March 21, 2014). The minister expresses his regret for having to offer a zero growth as good news.

The unemployment rate grew rapidly, with the country losing more than 200,000 jobs last year, and losing even more this year. The unemployment realities do present a “serious threat to national security.” A more “disturbing development” is the fact that the unemployment among the youths grew at much faster rate. Not good for the country’s future.

The annual inflation rate for the period ending March 2013 was at 32 percent. The inflation rate rose to 42 percent in July. The government is hoping to lower the rate to 25 percent during the next calendar year.

The combination of 42 percent inflation rate and -5.8 percent negative economic growth rate, a combination of high inflation and serious stagnation, is “unprecedented in the country’s history.” It presents serious policy challenges to fight both.

The investment activities countrywide have also declined, registering a negative -22 percent growth for the period. The worst-hit sector is construction with a negative -32 percent growth rate. The agriculture is the only sector that had a nominal growth rate.

The government budget in 1391 was at 210 trillion toumans (approximately $88 billion). But the government’s revenues were at 114 trillion toumans ($48 billion). A huge gap between the government’s revenues and expenditure.

In the current year, the government has paid out 42 trillion toumans ($18 billion) in cash subsidies, equally divided to all citizens. This is four times the development budget of the government; four times as amount we amount in the future of the country is paid out in cash now. Meanwhile, the savings from elimination of energy subsidies under the subsidy reform program amounted to 28 trillion toumans ($12 billion) during the same period. So under our current reform program, we are saving 28 trillion toumans a year, but handing out 42 trillion toumans. The difference is being paid from government’s general budget.

We have also borrowed 42 trillion toumans ($18 billion) from the Central Bank to build 2.3 million units of affordable housing.

In fact, we are paying for the cash subsidiary shortcomings and building affordable housing by printing money, causing high inflation, forcing everyone to pay higher prices for goods and services. We cannot get out of stagnation by continually printing money!

The country’s business environment index has plummeted and now ranks 158th among 180 countries. This is "not what the country should be proud of."

The privatization program has also not been implemented correctly. Only 3 (three) percent of all privatization “transactions” are real. This administration is aiming to reach 100 real transactions in privatization area.

The “illogical and unacceptable” growth in imports has created a precarious situation in the country, making the negative effects of the economic sanctions even worse that they should been.

What we have now is not an “economy of resistance.” It is a kind of economy which is making us “more dependent on foreigners.”

On sanctions, the biggest adverse effects have been on revenues from oil and petrochemical exports. The shortage (of revenues) has in turn created a hazardous situation where the imports of raw material, intermediate goods, and machineries have been practically halted, with all its negative effects on the country’s production activities and future employment.

The fiasco of subsidized cash payments twice the amount of savings from the so-called subsidy reforms, and building 2.3 million housing units with no budget to back it up, are examples that the minister highlights which had nothing to do with sanctions.

On sanctions, the minister is saying that instead of cutting "illogical" imports, the amount of imports have risen, making the country more dependent on foreigners, and naturally more susceptible to sanctions. By the way, instead of cutting consumer goods imports, they cut the import of intermediate goods and machineries, which will affect the economy for years to come, even after sanctions are lifted.

The minister's comments should give all serious readers and commentators on this blog an occasion to pause and think how wrongheaded the economic policies of the country has been, and in how deep a trouble the country finds itself, regardless of one’s politics. The last thing we want to do is to fool ourselves and others that these are all the results of sanctions.

In your comments on Irans foreign policy I tend to disagree with you but in economics you are right. Iran economy is too regulated and sanctions just played as a catalyst to the negative growth, this was going to happen eventually. However I am happy that they are planning to implement 'real' privatization which is the answer to the problems. This is however easier said than done, the IRGC already said theyll confront privatization. Good news is Khamenei supports privatization and rouhani admin, question is who has more power?

Let me put it this way: With friends like that, who needs enemies! The unprofessionalism by Ahmadinejad and his government is beyond belief: handing out cash twice the amount of the savings under the so-called subsidy “reform” program; building 2.3 million housing units with no budget; allowing “illogical and unacceptable” levels of imports, as the minister put it, and only consumer goods, but cutting intermediate goods, raw material and machinery imports. And they called it an “economy of resistance.” What economy, what resistance?

I am not conspiracy theorist, but Ahmadinejad and his pals did a number on the country that the shrewdest enemies could not do.

The financial power of the Revolutionary GuardsIt is impossible to gauge its share of Iran's GDP, but western estimates range from a third to nearly two-thirds

"The extent of the Revolutionary Guards' control over the Iranian economy is ­apparent as soon as you enter the country. They run the main international airport, and the manner in which they acquired it was a bruising demonstration of the way big business is now done in Iran.

The contract for managing Imam Khomeini airport, south of Tehran, was given to a Turkish-Austrian consortium in 2004, but on 8 May, the day it was supposed to open, guardsmen took it over, blocking the runways with their vehicles, and closing it down. Inbound flights had to be hastily diverted.

The Islamic Revolutionary Guard Corps (IRGC) declared that the involvement of foreigners posed a security risk because of an alleged link to Israel, but it was clear that the foreign consortium's biggest mistake was to try to cut the IRGC out...."

" The IRGC operate in part through Iran's bonyads, ostensibly charitable foundations that operate as huge holding companies. Under the shah they were a way of channelling wealth to favoured courtiers. After the revolution they were vehicles for self-enrichment by the ayatollahs. Now, in a reflection of the regime's continuing evolution, the IGRC is the dominant force, particularly through Bonyad e-Mostazafan, the Foundation of the Oppressed.

However, arguably the most powerful IRGC body today is Khatam al-Anbiya, which started life as the HQ of the corps' construction arm but is now a giant holding firm with control of more than 812 registered companies inside or outside Iran, and the recipient of 1,700 government contracts."

Where the previous administration provided economic renderings in the best possible light, this current administration provides renderings in the worst. Case in point: the inflation rate. The rate for the last six months of the previous Iranian year was 18 percent. Moreover, inflation is no longer the number one economic problem facing the country. However, the Rouhani administration chooses only to provide the rate for the year.

That Iran's economy has taken a hit is a given. But where's the Rouhani plan to tackle subsidies? Their first measure was a debacle, as the president admitted. And putting all the eggs in a single basket, hoping for sanctions to be removed, is conditional on factors not entirely dependent on Iran (other than an unconditional surrender with forthright regime change).

In Iran's more consrvative quarters, Ashton's trip was a wakeup call of sorts. To put this in American terms, it was as if the Russian foreign minister came to Washington DC to discuss the Crimean and Syrian situation, then before leaving the U.S. visited the family of Edward Snowden.

Still, more for the American interests that would potentially be served (my country of birth and residence), I remain hopeful the nuclear negotiations with Iran will be success.

Mark, the rate of inflation is not 18%. The government says it was 42% in July. How could, on what basis, could it go down from 42% to 18% from August to January, the six months period you say it went down? Suppose you are right; but why the government, which came to power exactly in August, should not take the credit for such a miracle? Why would the government say that they will do their best to bring the rate down to 25% in the next 12 months (the new year of 1393)? Why should we not believe the minister?

On subsidy and affordable housing; don't you agree with me t that what the government did was nothing short of disaster? How could they build 2.3 million housing units with no budget? By printing money in an economy with high inflation rate? How could they pay twice in cash handouts as they saved from subsidy eliminations? Any other way than paying it out of the general budget and print more money? And still call it subsidy "reform?”

How could they import consumer goods so irresponsibly and illogically, as the minister says, knowing well they were under sanctions? What happened to sloganeering about “economy of resistance?”

The minister summed it up: the combination of high inflation (mostly caused by wrong economic policies) and stagnation is unprecedented in the country's history. Why should we not believe that and instead attack the messenger for telling us how bad the situation had gotten?

there a lot of nonsense about the role of IGRC in the Iran economy.let assume the igrc leaves everythiung, who can take over ? the ordinary iranian privat Office with 10-20 employee can build South -Fars ?

Iran does not have neither Siemens or General Electric nor pepole like Henry Ford are there.

That is 3th World countrry with limited resource an human and kapital and know-how.

You often see this sort of thing,the new government bashing the old one and saying look at the mess its all their fault,it would be good to see some independent verification of the claims made by the economics minister,but what is the current government going to do about the these problems if they are in fact as bad as they say,it doesnt sound like their first attempts were anymore successful than the previous governments and hoping for sanctions to be removed to solve all your problems is nothing short of total idiocy,but then rouhani and co seem to want to cuddle up to the west as much as possible so how far can you really trust them

No offense to mark, I just came from iran and the infilation is certainly more then 18%. It is at breaking point that even the bazzaries are not happy.I am from a bazzary family and even they are starting to get mad at the system as a whole. For the first time I heard bazzaries call shah " Khodabiamorz" which was a shock to the system for me.Most average Iranians say it out loud(shah khodabiamorz) but the bazzaries showed loyalty to the clerics till now but even they are running out of patience which will mean trouble for the ruling clerics.This system has reached a dead end.

The political, social, scientific, educational, religious, economic, financial , legal, security, climate/infrastructure of current Islamic Republic are not conducive to create a healthy robust, diversified economy. Khameni should start the economic jihad by returning people's lands and properties to make the environment safe for private investments/investors. Iran is a lawless country and will never achieve anything of significance as long the people at the helm are corrupt to the core.

Also, some of this dependency and poverty is by design to keep the population dependent and malleable. Creating an independent middle class is an existential threat to the regime.

@Uskowi,it's not just Ahmadinejad and his pals that has done a number on the country. But the whole corrupt system of velih-e-fagih which Ahmadinejad and the rest of them are a part of,that have done that number on the country. Sooner everyone understands this the better for Iran to know who the real enemies of Iran are.

Thanks for your note. However, I have a serious problem with this type of analysis, or lack of. Basically because you oppose the system as a whole, you do not see any necessity to analyze the inner workings of the Islamic Republic. You make the life easy for everyone: don't read, don't write, don't analyze the politics in Iran; just say how evil the system is. I am sorry, politics doesn't work that way. Not recognizing a fundamental difference between the political outlooks and agenda offered by the radicals as opposed to the moderates would miss the political dynamics in the country. Your analysis would then become more like sloganeering, not much different from those of the ruling group inside the country.

@Uskowi,what serious problem you have with the basic truth? It's been thirty five years of sloganeering and lies by this regime.When do people want to learn that mullahs simply belong in the mosque and attending funerals? This game of hard cop and soft cop played by this deceptive regime is the oldest trick in the book for maintaining control over the population. If you want to accuse me of not reading books or not writting and sloganeering then that's fine by me.There is nothing to analyze about a group of deceptive people who are well known in Iranian society since Ferdowsi's time. If you can't see that a country like Iran is sitting on vast reserves of oil and gas followed by mineral wealth and "governed" by a bunch of chomagh be dast massabi khorofati-e-dozd then you are only deceiving yourself. Since you are in control of this blog do as you wish with my post.

How long have you lived abroad? If the regime closes down all the bazzaries the country will come to a halt. You saw what happened last year when bazzaries came out on strike and the local population joined them.

@Uskowi: The root of the subsidy problem is the regime's ineffectiveness in creating jobs, period. Instead of tackling the unemployment and structural flaws that prevent creation of jobs/investments, the ruling elite resort to having to pay subsidies.Iran, in effect, is a welfare nation and without the oil revenues cannot sustain this economic model.

I Visit Iran regulary every year nothing will be closed because the Bazari want to make Money the old Bazari style is olddated. you see in Uskowi howmany Shopping Center opened every month in Iran.the Tehran Bazar is total unimportant

by the waywho said "shah khodabiamorz" is a retired bazari recalling the good old time

Iran is Young and no active Person can remember Shah time.donot take such Thing serious

Hassan Rouhani's administration has done more talking than acting since its inception. Not to take the credit away from some of their successes especially on the foreign scene, though i am not against revealing what economic problem the nation has afterall which nation doesn't have an economic problem including the first world countries, however what solution does this administration has to offer is less discussed. As a commenter have said relying on the lifting of sanctions to end economic woes which this administration seems to adhere to is a fools errand.

Actually the clout these old bazzaries or merchants still weild power. They own a lot of the import/exports sectors of the country. They invested heavily in the private sector of the countries business or the economy .Right now with the invasion of sepah into the market, things are tense.The continues drop in rial with the combination of lack of spending, something has got to give.

So you're saying that if the IRGC goons don't rape Iran's wealth and given to foreign terrorists it will be given to American companies that the Iranian people can really benefit from long term business and technological contacts?

The khomenie airport and the ineptness of it shows how poor quality work of sepah and it's so called engineering corp. This regime instead of investing into engineering sector where normal free engineering corps could develop they allowed the corrupt sepah mafia destroy iran's economy and now we are left with a bankrupt country with all this natural resources.

AnonymousMarch 13, 2014 at 12:48 PMYou mean like the gulf states have done?,last time I looked they not only had to import their architects and engineers from abroad but most of their labour force as well,so much for any local benefit from these "long term business and technological contacts"

AnonymousMarch 15, 2014 at 10:31 PMPity that dubai and qatar couldnt have done any of it by themselves using their own people and skills like iran has which was the original point as I recall,but then you sound like just another typical angry malcontent criticizing and denigrating anything iran does

It seems like you don't get it. Instead of giving money to sepah or allowing to steal all these years the government if it had a goal of making the country a industrial power they would have invested wisely into developing a base where normal companies could compete.Instead all these corrupt goverments for years have been giving contracts to this canceriouse tumor called sepah which btw was invited into the economy by Rafsanjani and not Ahmadinejad.

We need to start building a base from the ground up to develope the country from the bottom up like reza shah tried to do and once and for all rootout corruption..

Iran is a regional industrial power and it got there by working with foreign firms but also by developing its own capabilities and unlike the gulf states iran doesnt need to import everything from engineers to workers,matches to washing maschines,but your argument seems to consist of "wouldnt it be great if iran was more like the gulf states" or "wouldnt it be great if pahlavi was running the show,I bet he`d fix everything"

So who built Zobahan? iran's steel/foolad industry, Iran khodro, iran national? who made Iran's economy the fastest growing in the WORLD with a fixed inflation from 1963 to 1977? who made rial 7 toman compared to the US dollar and made our currency one of the top 10 most valueable currencies?.Iran's industrial annual growth rate of over 12% a year.

When reza shah came, we didn't even have birthcirtificates, when shah left, iran was a regional economic and industrial power. now we are almost bankrupt. yep those pahlavis destroyed iran.When shah was planning to build 18 nuke reactors to generate 23 thousand killowatts of power and this incompetent regime has taken iran to the threshold for one 1,000 killowatts.

AnonymousMarch 17, 2014 at 11:40 AMNo,being utterly unable to build or do anything yourself is what makes you a gulf state,theres lenty of investment in irans backyard,but iran is not utterly dependant on other countries for virtually everrything like the gulf states

AnonymousMarch 17, 2014 at 11:38 AMYou seem to be forgetting the 35 years of growth and development thanks to the iri,true mossadegh and pahlavi laid the groundwork but its the iri thats made iran the regional power that it is today,and last time I looked there was plenty of corruption and cronyism under the shahs arab style dictatorship,as for the "eighteen reactors" whether those ever would have actually been built is a real question,but even if they had been it would have been by foreign firms with very little iranian participation just like the original bushehr was

Did'nt this regime ask Russia to build 3 new reactors?Shah's arab dictatorship?. What the hell is that?As or corruption, there was no babak zanjani stealing 9 freaking billion dollars.,There were no shahram jazayeree steals hundreds of millions and sepah heads are even worse. Khamenie has 95 billion dollars which is outside of iran's economy. it means he dosent pay taxes.He has 95 billion dollars for his personal use while according to the regime majority of Iranians are reaching the poverty line.

When you need 2 million toman to survive a month and the average wage is just over 6hundred to 900 hundred thousand, you do that calculations. yep great strides. wakeup and go outside of you're bassiji or mozdoor inner circle. or atleast educate you'rself.

As for the reactors,shah had sent 1,500 technition to study and learn how to stat managing the reactors.When shah was saying 40 years ago iran needs stop relying oil and start building a industrial base which he did, people called him nuts. When he tripled the oil prices and told the US i'm notchanging, the us treasuirer called him a mad man.

When iran's industrial growth rate was twice of that of south korea by 1977 and a Iranians annual income was double that of turkey which are now both top ten economies in the world.Ian was predicted by most economic experts to be a top 5 economic power by 1990 with the rate of annual growth. over 14% annual economic growth rate and 12% industrial annual from 1963 to 1977 every year.

Shah's Arab style dictatorship? Last time I Iooked seems like the "arab style dictatorship" as you naively claim is the one that is presently in power in Iran. Perhaps if you look at the present flag of Iran you will notice the Allah symbol in the center of the flag as well as Allah written above and below that "arab style" symbol. Plus the Ommati occupying regime is slowly forcing Arabic words into our vocabulary. You really need to smell the coffee beans and wake up from your self inflicted comatose regarding this arab loving Sheikh Ommati dictatorship.

Look there was cencorship as well in the previouse regime, but atleast there was a lot and I mean ALOT more social, religiouse and general freedom with a rapidly developing country.What s funny is our friend says Shah's arab dictatorship, but it was the pahlavis who for the first time since the arab invasion stated bringing back our pre-arab invasion history back to light.

How was the shah and his family any different from the classic arab style dictatorships of gaddafi or mubarak or assad,the only difference was that none of them called themselves emperor,the shahs rule was a military dictatorship masquerading as a monarchy,it combined the worst elements of the arab style dictatorship and the arab style absolute monarchy

This Site

Uskowi on Iran offers factual reporting and editorial on the current situation in Iran, with special emphasis on political and military developments, nuclear program, foreign policy and law enforcement. We thank you for your visit and encourage you to post your comments. You can contact us by email: nuskowi |at| gmail.com.